Chapter (1)

The accounting equation

Assets = Capital + Liabilities
Assets (vkyfief;\ydkifqdkifrSkrsm; vkyfief;u&&efta<u;rsm;)
Cash in hand (cash)
Cash at bank (bank)
Motor vehicles
Office Furniture
Fixture and fittings
Officer equipment
Land and buildings (premises)
Plant and machinery
Goods
Accounts Receivable (AR) or Debtors

Capital (vkyfief;xJodk.ydkif&Sif&if;ESD; aiG vkyfief;uydkif&&Sifukdjyefay;&ef)

Liabilities (vkyfief;\ay;&efwm0ef ydkif&Sifr[kwfaom tjcm; ol rsm;

udkvkyfief;uay;&eft<u;rsm;)
Loan from bank (owing to bank)
Loan from ………..
Account Payable (AP) or Creditors (Payables)
L Wang
Balance Sheet at 1 September Year 5
£ £
Office furniture 600 Capital 6,000
Motor vehicle 4,800 Loan from T Wells 1,000
Cash at bank 1,600
7,000 7,000

1. On 4 September Year 5, L Wang buys a computer for £1,000 making payment by drawing
a cheque upon his bank account.
L Wang
Balance Sheet at 4 September Year 5
£ £

2. If on 7 September Year 5 L Wang were to buy some goods on credit from F Denyer,
amounted to
£700.
L Wang
Balance Sheet at 7 September Year 5
£ £
3. On 15 September, L Wang sells some of the goods which had cost £ 300 for the same
amount and received a cheque in exchange and pays this into his bank account.

L Wang
Balance Sheet at 15 September Year 5
£ £

4. On 21 September Year 5, L Wang sells goods which had cost £200 to D Stone "on credit"
for the same amount.
L Wang
Balance Sheet at 21 September Year 5
£ £

5. On 24 September Year 5 L Wang sends a cheque for £400 to F Denyer towards the amount
owing.
L Wang
Balance Sheet at 24 September Year 5

6. On 29 September Year 5, L Wang receives a cheque for £200 from his debtor D Stone. He
pays the cheque into his bank account.

L Wang
Balance Sheet at 29 September Year 5
£ £
 CREDIT TRANSACTIONS
SALES by the business to a customer PURCHASES by the business from a supplier
·creates a ·creates a
DEBTOR/RECEIVABLE CREDITOR/PAYABLE
a customer who owes money to the business a supplier who is owed money by the business
·recorded as an ·recorded as a
ASSET of the business LIABILITY of the business
·settled when the business ·settled when the business
RECEIVED CASH PAY CASH

EXERCISES

1.1 Insert the missing figure in each of the following:

Assets Capital Liabilities

£ £ £
(a) 12,500 2,500
(b) 28,000 4,000
(c) 16,000 12,000
(d) 19,000 6,000
(e) 39,000 11,000

1.2 Which of the items in the following list are liabilities and which of them are assets?
(1) loan from D Jones
(2) computers
(3) warehouse we own
(4) we owe a supplier for goods
(5) debtors
(6) fixtures and fittings
(7) premises
(8) creditor
(9) owing to bank
(10) motor vehicles
(11) cash in hand
(12) bank overdraft
(13) loan to C Shirley
(14) goods
(15) machinery

1.3 Draw up M Kelly’s Balance Sheet from the following data at 31 December year 9.
£
 Cash at bank 300
 Creditors (Payables)
1600
 Goods 4200
 Fixtures and fittings 1800
 Debtors 1200
 Motors vehicles 3800
1.4 State the balance sheet effects of each of the following.
Note: the business has cash in hand and cash at bank, you are required to state clearly.

(a) We pay a creditor £70 in cash

(b) Bought fixtures £200 paying by cheque
(c) Bought goods on credit £275
(d) The proprietor (owner) introduces anther £500 cash into the firm.
(e) J Walker lends the business £200 in cash
(f) A debtor pays us £50 by cheque.
(g) Bought premises paying £5,000 by cheque.
(h) Bought a van on credit £700.
(i) Repaid by cash a loan borrow from F Duff £10,000.
(j) Bought goods for £400 by cheque.
(k) The proprietor takes out £200 cash for his personal use.

1.5 State the balance sheet effects of each of the following:

(a) The business borrows £5,000 from L Walpole and the money is placed in the
firm’s bank account.
(b) A debtor pays £ 250 by cheque
(c) The business bought a motor vehicle on credit for £6,200
(d) The owner withdraws £ 160 from the firm’s bank account for his personal use
(e) Goods are sold on credit for £ 840
(f) The owner puts a further £3,000 each into the business. The money is
immediately entered into the business bank account.
(g) A creditor is paid £290 by cheque

1.6 W Mandrake has the following items in his Balance Sheet on 30 June Year 6.
£ £
£
Goods 5,360 Debtors 4,500 Cash at bank 1,845
Fixtures and fittings 2,800 Motor Vehicle 5,100
Creditors (Payables) 2,900 Loan from L Walters 3,000

During July Year 6, W Mandrake:

- bought further goods on credit for £ 700
- paid creditors £400 by cheque
- banked cheques amounting to £1,100 which had been received from debtors
- sold on credit goods which had cost £ 600 for the same amount
Required;Prepare the balance sheet of W Mandrake at (i) 30 June Year 6 (ii) 31 July Year 6
 Chapter (2)
Transaction Through “Double Entry”

Rules for Double Entry

The rules for double-entry are;
Assets an increase Debit
a decrease Credit

Asset Account

Increase + Decrease -

Capital and Liability an increase Credit

a decrease Debit
Capital & Liability Account

Decrease - Increase +

EXERCISES
2.1 Draw up the following table. In the right-hand columns you should enter the names of
the accounts which are to be debited and credited respectively.
Debit Credit
(a) Bought office furniture for cash

(b) Sold goods on credit to T Rich

(c) Bought motor vehicles on credit from L Wolfson

& Co
(d) A debtor R Price, pays the business by cheque

(e) The owner puts a further amount into the business

by cheque
(f) Paid by cheque for the motor vehicle bought from L
Wolfson & Co
2.2 Draw up the following table. In the right-hand columns you should enter the names of
the accounts which are to be debited and credited respectively.
Debit Credit
(a) Paid creditors by cheque

(b) Bought office furniture paying in cash

(c) Bought goods on credit

(d) The proprietor introduces another cash into the firm

(e) J Walker lends the firm in cash

(f) A debtors pays us by cheque

(g) Bought additional shop premises paying by cheque

2.3 Enter the following transactions into the accounts of William
Year 4
June 1 Started business with £2,000 cash
" 2 paid £1,800 of the cash into business bank account
" 5 Bought office furniture on credit from B Ltd for £120.
. " 8 bought motor van paying by cheque £950.
" 12 bought goods on credit form Evan £560.
" 13 sold goods on credit to Bill £300 for the same amount
" 25 paid amount owing to B Ltd £50 by cheque.
" 26 bought goods by cheque £200.
" 28 took £100 out of the bank and put it in the cash till.
" 29 received £100 from Bill in cash.
" 30 J Smith lent us £500 giving us the money by cheque.

2.4 Enter the following transactions into the accounts of A hill

Year 4
April 1 Started business with £5,000 in the bank.
" 2 Bought motor van on credit from CG Ltd for £400.
" 5 Bought office furniture by cheque for £1,200.
" 8 bought machinery paying by cheque £900.
" 12 bought goods on credit form Jack £500
" 15 paid amount owing to CG Ltd £250 by cheque.
" 26 bought goods by cheque £200.
" 28 took £100 out of the bank and put it in the cash till.
" 29 sold goods by cheque £100for the same amount.
" 29 loan of £1,000 cash is received from J Jarvis.
" 30 paid £800 of the cash in hand into the bank.

2.5 Complete the following table showing which account are to be debited and which
accounts are to be credited:
Debit Credit
(a) bought motor van for cash

(b) purchase goods on credit from C Jones

(c) paid creditor, T Lake, by cheque

(d) Bought machinery on credit from Ultra

Ltd.
(e) purchase goods for cash

(f) sold goods for cash

(g) sold goods on credit to A Hill

(h) cash received form a debtor, J Cross

 Chapter (3)
Purchases, Sales & Returns

Goods Account Reason

Purchases account For the purchase of goods

Sales account For the sale of goods

Returns inwards account For goods returned to the firm by its

(sales returns account) customers
Returns outwards account For goods returned by the firm to the
(purchases returns account) suppliers

EXERCISES
3.1 Alongside each of the following, state (1) the name of the account to be debited, (2) the
name of the account to be credited.
Debit Credit
(a) Bought office furniture by cash, for using the
business
(b) Sold goods for cash

(c) Bought goods on credit from A Litton

(d) Returned to A Litton some of goods just bought

(e) Sold goods on credit to D Penarth

(f) Purchased deliver vehicle (for use in the business)

on credit from Grange Garages

3.2 Alongside each of the following, state (i) the name of the account to be debited, (ii) the
name of the account to be credited.
Debit Credit
(a) Bought goods on credit from W Steel

(b) Sold goods for cash

(c) Bought delivery vehicle (for use in the business) by

cheque
(d) Returned goods to W Steel

(e) Sold goods on credit to F Platt

(f) Sent cheque to W Steel

(g) F Platt returned goods

3.3
Enter the following transactions of R Webster in appropriate accounts:
Mar 1 Commenced business with £10,000 in the bank
" 3 Bought office furniture by cheque £460
" 5 Bought goods on credit £375 from T Hunt
" 8 Returned goods to T Hunt £55
" 12 Sold goods on credit £156 to B Wright
" 15 Bought motor vehicle on credit from Scales Motors £3,600
" 19 B Wright returned goods £26
" 23 Sent cheque for £3,600 to Scales Motors
" 26 Sent cheque to T Hunt in settlement of account
" 30 Received cheque £70 from B Wright.
3.4
You are to enter the following in the accounts needed:
Aug 1 Started business with £ 500 cash
" 3 Bought goods for cash £85
" 7 Bought goods on credit £116 from E Morgan
" 10 Sold goods for cash £42
" 14 Return goods to E Morgan £28
" 18 Bought goods on credit £98 from A Moses
" 21 Returned goods to A Moses £19
" 24 Sold goods to A Knight £55 on credit
" 25 Paid E Morgan' s account by cash £88
" 31 A Knight paid us his account in cash £55
3.5
You are to write up the following in the books:
July 1 Started business with £1,000 cash
" 2 Paid £900 of the opening cash into the bank
" 4 Bought goods on credit £78 form S Holmes
" 5 Bought a motor vehicle by cheque £500
" 7 Bought goods for cash £55
" 10 Sold goods on credit £98 to D Moore
" 12 Returned goods to S Holmes £18
" 19 Sold goods for cash £28
" 22 Bought fixtures on credit from Kingston Equipment Co £150
" 24 D Watson lent us £100 paying us the money by cheque
" 29 We paid S Holmes his account by cheque £60
" 30 We paid Kingston equipment Co by cheque £150
" 31 D Moore returned goods to us £18
 Chapter (4)
Expenses & Income
Expenses (Debit)
Wages
Salaries
Rent (Rent Payable)
Insurance
Advertising
Rates
Lighting and Heating (Electricity)
Telephone
Carriage
General Expenses (Sundry Expenses)
Motor vehicles expenses

Income (Credit)
Rent Receivable
Commission Receivable
Interest Receivable

4.1 For each of the following, state which account is to be debited and which account is to be
credit.
Debit Credit
(a) paid insurance by cheque

(b) bought goods from F Tapter

(c) sold goods for cash

(d) paid general expenses in cash

(e) received cheque from L Wintton

(f) bought goods by cheque

(g) received commission in cash

(h) bought office equipment by cheque

(i) sold goods on credit to T Watts

(j) motor vehicle bought by cheque

(k) Paid creditor by cheque

(l) Goods returned to us by customer

4.2 For each of the following, state which account is to be debited and which account is to
be credit.
Debit Credit
(a) Paid motor expenses by cash

(b) Paid wages by cheque

(c) Sold goods for cash

(d) Rent received in cash

(e) Paid rates by cheque

(f) Bought motor vehicle by cheque

(g) Purchase goods on credit

(h) Customer returns goods to us

(i) Cash paid to creditors

(j) Paid lighting and heating by cheque

(k) Received cash from debtors

(l) Goods return to creditors

4.3 Record the following in appropriate accounts. Using the rules of double entry:
Year 4
Apr 1 L Timms started in business with £5,000 in the bank
" 3 Bought office equipment for £ 370 by cheque
" 5 Paid rent by cheque £260
" 8 Purchased good on credit £ 420 from A Smart
" 11 Returned goods to A Smart£ 35
" 14 Drew from bank for office cash £130
" 15 Paid wages in cash £ 115
" 18 Sold goods on credit to R Squires £175
" 21 Bought stationery by cheque £20
" 24 Sold goods for cheque £ 85
" 27 Paid by cheque the amount owing to A Smart
" 30 L Timms paid a further £1,000 into the bank account
4.4 You are required to enter the following transactions in the books of M O’Ryan: Aug 1
Year 4
Aug 1 started in business with £7,000 in the bank
" 2 Paid rent by cheque £280
" 5 Purchased goods on credit £520 from R Lester
" 8 Bought fixtures and fittings by cheque £170
" 12 Returned goods to R Lester £45
" 15 Sold goods on credit to D Langford £265
" 19 M O’Ryan withdraw from bank for private use £160
" 22 D Langford returned goods £30
" 24 Drew from bank for office cash £ 240
" 26 Paid R Lester by cheque the amount owing
" 28 Received cheque£ 100 on account from D Langford
" 30 Paid wages in cash£ 160
" 31 Bought office equipment by cheque £ 215

4.5
May 1 L Western commenced business with cash of £15,000
" 3 Transferred £13,000 cash into a bank account
" 6 Purchased goods on credit from J White for £760
" 8 Paid rent in cash £250
" 10 Bought office equipment by cheque £1,300
" 14 Returned to J White goods £30
" 17 Sold goods on credit to T Swann for £270
" 21 Paid rent in cash £250
" 24 Paid insurance by cheque £14
" 26 Sent cheque to J White goods for £300
" 28 Sold goods for cash £290
" 30 Received cheque from T Swann in settlement
" 31 L Western made drawings £790 form cash
Required: Prepare ledger account for above transaction.

4.6 Prepare ledger account for following transactions.

Jan 1 Started business with £2,000 in the bank

" 2 Purchased goods £175 on credit from M Mills
" 3 Bought fixtures and fittings £150 paying by cheque
" 5 Sold goods for cash £275
" 6 Bought goods on credit £144 from S Watts
" 10 Paid rent by cash £15
" 12 Bought stationery £27 paying by cash
" 18 Goods returned to M Mills £23
" 21 Let off part of the premises receiving rent by cheque £5
" 23 Sold goods on credit to Henry for £77
" 24 Bought motor van paying by cheque £300
" 30 Paid wages by cash £117
" 31 The proprietor took cash for himself £44
 Chapter (5)
The Trial Balance

Account Balances
|

Debit balance Credit balance

-Assets - Liabilities
-Expense - Income
-Drawing - Capital

EXERCISES
5.1 Against each of the listed items tick (√) either the Debit column or the Credit
column according to which side of the trial balance you would expect the item to appear.

Items Debit Credit

Creditors (Payables)
Debtors
Fixtures & Fittings
Capital
Wages
Motor Vehicle
Sales
Loan from T Black
Premises
Purchases
Cash
Insurance
Drawings
Inventory of goods

5.2 On 31 December Year4, T Lennon had the following account balances:

£
Motor vehicle 4,500
Purchases 2,960
Sales 4,230
Inventory of goods 1,800
Cash at bank 6,740
Fixtures & Fittings 7,900
Wages 2,310
Debtors (Receivable) 1,960
Creditors (Payables) 2,600
Rents 1,250
Drawings 180
General expenses 930
Loan from D Waller 2,000
Capital 21,700
Prepare the trial balance of T Lennon at 31 December Year 4.
 Chapter (6)

The Division of the Ledger

Types of ledgers
Account Named
(a) Customers’ personal accounts Sales ledger
(Debtor accounts)
(b) Suppliers’ personal accounts Purchases ledger
(Creditor accounts)
(c) Cash and bank accounts Cash book
(d) The remaining accounts General ledger
(Or nominal ledger)

6.1 Set out and complete the following table.

Transaction a/c to be debited division of the a/c to be division of the
ledger credited ledger
 Goods bought for cash
 sold goods on credit
 paid rent by cheque
 bought furniture by cheque
 goods bought on credit
 cash received from debtor

6.2Name the ledger in which you would expect each of the following accounts to be appear.
(a) Purchases account
(b) Sales account
(c) D Smith –debtor
(d) Rent payable
(e) Machinery
(f) Drawing
(g) R Key –creditor
(h) Cash

6.3 (a)Name four types of personal account

(b)What type of account is each of the following?
 machinery
 sales
 general expenses
 bank
 inventory
 debtor
 Chapter (7)
Two column cashbook

7.1 Prepare two column cash book from the following transaction.
July 1 T Duster started in business with £ 6,000 in the bank
" 3 Bought motor vehicle for£3,600 by cheque
" 5 Withdraw £150 from bank for office cash
" 8 Paid rent in cash £85
" 12 Bought goods by cheque £460
" 15 W Hall lent T Dunster £2,000 by cheque
" 18 Paid carriage in cash £40
" 20 Withdraw from bank £100 for office cash
" 23 Cash sales £390
" 25 Bought goods by cheque£670
" 27 Paid wages £20 in cash £100 by cheque
" 29 Cash sales paid direct into the bank £540
" 30 Banked £300 of cash

7.2 Prepare a two-column cash book from the following details, balancing it at the end of the
month
Oct 1 Balances brought forward from the previous month:Cash £35;Bank £1640(Dr)
" 3 Paid rent by cheque £165
" 5 Withdraw from bank for office cash £60
" 7 Sold goods for £390 ; £70 in cash; £320 by cheque
" 10 Paid T Rendell by cheque £265
" 12 Bought postage stamps £15 in cash
" 14 Received cheque from A Pine £130
" 16 Cash sales £450, £300 of this was paid direct into the bank account
" 19 The properties withdraw £80 in cash for private use
" 23 Paid insurance by cheque £110
" 25 Bought goods by cheque£770
" 27 Cash sales £215
" 29 Paid general expenses in cash £65
" 30 Banked £250 cash

7.3 Prepare a two-column cash book from the following details, balancing it at the end of the
month
May 1 Balances brought forward from the previous month: Cash £67;Bank £1,037(Dr)
" 3 Drew cheque payable to D Petts £215
" 5 Withdraw from bank for office cash £50
" 10 Cash sales £375, £300 of this was paid direct into the bank account
" 13 The properties withdraw by cheque for private use £360
" 16 Drew cheque payable to L Ryan £294
" 19 Bought goods by cheque£490
" 22 Cash sales £240
" 24 Banked £250 cash
" 27 Paid general expenses in cash £32
" 29 Drew cheque payable to T Marle£330
 Chapter (8)
Three column cashbook

8.1
Prepare a three-column cash book from the following details. Balance at the end of the
month and show the discount accounts in the general ledger.
July 1 Balance brought forward : cash £419 ; bank £3,685(Dr)
" 2 Received cheque from A Wood £296
" 6 Paid wages in cash £102
" 9 Paid C Hill £211 by cheque in full settlement of his account of £224
" 12 Received £146 cash for sale of damaged inventory
" 12 Paid T Jarvis £1,023 by cheque in full settlement of his account of£1,051
" 13 Paid wages in cash £104
" 17 Received cheque for £500 from Atlas &Company
" 19 Paid £21in cash for postage stamps
" 20 Paid wages in cash £102
" 23 Withdrew £200 from bank for office cash
" 25 Paid W Moore £429 by cheque
" 26 Paid wages in cash £105
" 28 Received £317cash from T Phillips in full settlement of his account of £325, paid
into bank the same day
" 31 Paid £260 cash into bank

8.2
D Evans is a sole trader who records all her cash and bank transactions in a three column
cashbook. At 1 October year 6, her cash in hand was £68 but she had a bank overdraft of
£1,692.
The following are her transactions for the month of October year 6.
Oct 2 Received a cheque of £160 from P Mace in full settlement of a debt of £168.This was paid
straight into the bank.
" 10 Cash sales paid direct to bank £ 2,086
" 12 Drew a cheque £75 in favour of W Easter
" 14 Paid £35 cash for stationery
" 16 Paid to F Samway the sum of £86 by cheque in settlement of amount owed to him of £90
" 18 Drew cheque for office cash £150
" 20 Cash sales £1,120; cash kept in office safe
" 21 Received loan interest of £60, and paid this into bank. The sales of the previous day were
also banked.
" 22 Paid cleaner’s wages out of cash £35
" 24 Paid telephone charges by cheque £147
" 26 Received a cheque of £704 from B Chalke in settlement of his account amounting to£720.
" 28 Paid £40 out of cash for office expenses.
" 30 Paid £254 to L Hall by cheque in full settlement of the £260 balance on his account.
" 30 Bank notified D Evans that they had charged £20 bank interest to his account.
(a) Draw up the 3-column cash book of D Evans for the month of October Year 6.Balance
the cash and bank columns bringing down the balance at 1 November Year 6.
(b) Total the two discount columns and state to which ledger accounts these totals will be
posted and to which side of each account.
 Chapter (9)
Daybooks
Sales daybook
Date Customer’s Name Invoice Folio
No Amount

INVOICE
Samantha & Company
15 West Street
Old bridge QQ1 6EP 3 May Year 5
Invoice No. XT436

To: E Lyons
6 Wild Road
Bristol B6 4RN
Quantity Description Unit Price Total
60 Boxes square 5 300
40 Boxes round 7 280
30 Bags 8 240
820
Less trade
discount at 20% 164
656
Terms: 2 ½% cash discount
for payment within one month

The structure of the sales day book

Sales invoice
(Source document)

SALES DAY BOOK

(Book of prime entry)

Promptly transfer monthly transfer

SALES LEDGER
GENERAL LEDGER
Debtor accounts
Sales accounts
Debited
Credited
9.1 From the following details you are to:
(a) enter the items in the sales day book
(b) post the items to the relevant accounts in the sales ledger; and
(c) record the transfer to the sales account in the general ledger at the end of the
month
Credit sales to List price Trade discount
Year 9
Jul 2 D Smith 160 20%
" 7 T Ronald 640 25%
" 12 N Smithers 320 20%
" 18 L Mall 186 -
" 23 D Smith 260 15%
" 30 T Ronald 580 25%

Purchase daybook
Date supplier’s Name Invoice Folio
No Amount

The structure of the purchase day book

Purchase invoice
(Source of document)

PURCHASES DAYBOOK
(Book of prime entry)

Monthly transfer promptly transfer

GENERAL LEDGER PURCHASE LEDGER

Purchases account Creditors (Payables) account
Debited ` credited

9.2 From the following details you are to:

(a) enter the items in the purchases day book
(b) post the items to the relevant accounts in the purchases ledger and
(c) record the transfer to the purchases account in the general ledger at the end of the
month
Credit purchases from List price Trade discount
Year 10
Dec 2 L Jackson 240 15%
" 5 Smith 820 25%
" 12 David 660 20%
" 16 L Jackson 525 20%
" 23 Smith 490 20%
" 30 Jerry 580 15%
 Returns inwards daybook
(Sales return daybook)
Date Customer’s Name Credit Folio
note No Amount

The structure of sales return

Credit note issue
(Source of document)

Return inward daybook

(Book of prime entry)

Monthly transfer promptly transfer

GENERAL LEDGER SALE LEDGER

Returns inwards account debtors accounts
Debited credited
credit note
Samantha & Company
15 West Street
Old bridge QQ1 6EP 9 May Year 5

Credit note No. XT436

To: E Lyons
6 Wild Road
Bristol B6 4RN
Quantity Description Unit Price Total

30 Bags 8 240
240
Less trade
discount at 20% 48
192

Return outwards daybook

(Purchases returns daybook)
Date supplier’s Name Credit Folio
note No Amount
 The structure of purchase returns
Credit note received
(Source of document)

Return outward daybook

(Book of prime entry)

Promptly transfer monthly transfer

PURCHASER LEDGER GENERAL LEDGER

Creditors (Payables) account Returns outward accounts
Debited credited

9.3 From the following details you are required to

(a) Enter the transactions in the purchases, sale, returns outwards and returns inwards day
books:
(b) Post the items to the relevant accounts in the purchases and sales ledgers; and
(c) Record the transfer to accounts in the general ledger at the end of the month
Year 8
Jan 1 Credit sales to K Devine at list price of £320,subject to 121/2%trade discount
" 3 Credit purchase from S Letts at list price of £530, subject to 10% trade discount
" 6 Devine returned to us goods bought on 1 Jan with a list price of £56
" 9 Credit sale to P Starkey at list price of £360, subject to 15% trade discount
" 12 Returned to S Letts goods bought on 3 Jan with a list price of £60
" 15 Credit sales to K Devine at list price of £260 ,subject to 10% trade discount
" 18 Credit purchases from P Boyle £89
" 21 Credit sale to D Lemon , at list price of £520, subject to 20% trade discount
" 24 Returned goods to P Boyle £17
" 28 Credit sale to P Starkey at list price of £280 ,subject to 121/2% trade discount
" 31 D Lemon returned to us goods bought on 21 Jan with a list price of £80

9.4 J Jarvis is a dealer in fancy goods who maintains day book.

Aug 4 Bought goods from G Mann with a list price of £400, subject to a trade discount of
25%
Aug 5 Sold goods to B Allen for £240, subject to a cash discount of 5% if paid within 14
days
Aug11 Bought goods from B Jollie with a list price of £250, subject to trade discount of
20% and a cash discount of 5% if paid within 14 days
Aug12 Sold goods to G Parket for £360, subject to a cash discount of 10% if paid within 7
days
Aug15 Paid cheque to B Jollie for goods bought on 11 August.
Aug18 Received cheque from G Parket for goods sold on 12 August.
Aug21 Sold goods to E Todd for £270, subject to a trade discount of 10% and a cash
discount of 5% if paid within 7 days
Aug29 Paid cheque to G Mann for goods bought on 4 August
Aug31 Received cheque from B Allen for goods sold on 5 August.
Required;Enter the above transactions in J Jarvis’ purchases daybook , sales daybook and the
cash book.
 Chapter (10)
Petty Cash Book: Imprest System

Introduction
It is possible for the cash book to become overloaded with many small item of
expenditure. To overcome this, a subsidiary book may be set up to deal with small payments
including claims made by employees for expenses they have incurred on behalf of the firm.
This enables person looking after the cash book to use his/her time more advantageously by
concentrating on the bigger transactions while the petty cash handles the minor payments.
Sometimes a limit is placed on the amount of any payment which individually can be made
from petty cash e.g. not exceeding £50.It is usual for the petty cash book to include analysis
column for a given category of expenditure.
Imprest system
Petty cash commonly works on the imprest system and that is what we are going to use.
Initially a “float” figure is set, say £100: the petty cashier may then spend up to that sum each
month. At the end of each month a check is carried out; the amount paid out is then
“reimbursed” to bring the amount held by the petty cashier back up to the limit figure.

Petty cash book

Receipt Date Details Vou Total Postage Stationery Cleaning Travel Ledger
cher expenses
No.
£ £ £ £ £ £ £

Example (1)
Voucher £
No.
May 1 Starting float of petty cash 100.00
" 3 Stationery 1 5.60
" 5 Postage 2 8.70
" 8 Cleaning expenses 3 15.20
" 12 Payment amount owing to K Sutton (creditor) 4 27.40
" 17 Postage 5 6.30
" 20 Travel expenses 6 4.50
" 23 Stationery 7 3.20
" 25 Cleaning expenses 8 12.40
" 27 Received from A customer for photo copying 1.20
" 29 Postage 9 6.30
" 31 The cashier reimburses the petty cashier

10.1 T Wyllie uses the petty cash imprest system, the imprest being £150. At 1 November
Year 4, the balance of petty cash in hand in £32.10. The following transactions were deal
with by the petty cashier during the month of November year 4.
Nov 1 T Wyllie gave cash to petty cashier to make up to the imprest amount
" 3 Paid 15.20 for petrol
" 5 Paid 20 for postage stamp
" 8 Paid 8 for cleaning materials
" 12 Paid 9.6 for petrol
" 14 Paid 9.15 for travelling expenses
" 17 Paid 5 for cleaning materials
 " 21 Paid 5.3 for postage
" 22 Paid 10.10 to C Talisman ,a creditor
" 25 Paid 11.50 to C Talisman ,a creditor
" 26 Paid 7.64 for travelling expenses
" 27 Paid 30 for postage stamps
" 30 Paid 3.50 to D Cole ,a creditor
Required; Enter the above transactions in the petty cash book of T Wyllie for November
year 4, showing the balance at the end of the month. Bring down the balance and show the
entry to reimburse the account on 1 December year 4.
Note: The analysis columns used by T Wyllie are motor vehicles expenses, postage ,
cleaning expenses, travelling expenses and ledger.

10.2 S Gardner keeps his petty cash book on the imprest system. The imprest figure was
set at £200. On 1 May Year 6, S Gardner drew cash from the bank to restore the imprest. The
following transactions took place during May Year 6.
May 3 Paid motor vehicle expenses £32
" 5 Purchased stationery £12.70
" 8 Purchased postage stamps £9.50
" 11 Paid cleaning expenses £8
" 14 Paid travelling expenses £11.30
" 16 Paid D Kane, a creditor £24.60
" 18 Purchased postage stamps £12.80
" 21 Purchased stationery £15.10
" 25 Paid cleaning expenses £9
" 27 Purchased petrol £14.50
" 30 Payment of charge for parcel post £13.20
On 1 June Year 6 S Gardner decided to increase the imprest to £250.
Required: Draw up S Gardner’s petty cash book, using the following analysis columns:
Motor vehicle expenses, stationery, postage, travelling expenses, cleaning expenses, ledger
accounts

10.3 K Wigmore is a local trader who operates his petty cash on the imprest. He balances
the petty cash book each Friday and makes the float up to £150 each Monday morning by
drawing a cheque on the firm’s bank account. The petty cash book has analysis columns as
follows:
Postage, stationery, advertising, wages, travelling expenses and sundry expenses
On Friday 1 October Year 4, £45.20 remained in the petty cash. Payments in the next two
weeks were as follows:
Monday 4 October Taxi fare £4.50 Postage stamps £3.60
Tuesday 5 October Envelopes and writing material £2.80
Wednesday 6 October Wages £54.30
Thursday 7 October Office cleaning £9.40 Advertising £12.50
Friday 8 October Postage stamps £2.60
Monday 11 October Advertising £18.30
Tuesday 12 October Supplies for office party £8.65
Wednesday 13 October Wages £67.60 Stationery £7.20
Thursday 14 October Train fare £6.30
Friday 15 October Postage stamps £5.80
Required: Write up the petty cash book for the two-week period. It should be balanced
each Friday and the total restored on Monday 4 October and Monday 11 October Year 4.
 Chapter (11)
Final accounts
11.1 The following is the trial balance of T Wedlburn after his first year’s trading. You are
required to draw up a trading and profit and loss account for the year ended 31 December
year 6 and a statement of financial position as at 31 December year 6
T Wedlburn
Trial Balance at 31 December Year 6
Dr(£) Cr(£)
Premises 54,000
Cash at bank 4,130
Sales(Revenue) 34,600
Rent 1,200
Insurance 160
Purchases 26,200
Wages 6,100
Motor vehicles 5,600
Creditors (Payables) 1,700
Debtors (Receivable) 3,460
Lighting and heating 300
Discount allowed 80
Discount received 70
Fixtures and fittings 1,200
Drawings 2,600
Capital 68,660
105,030 105,030
T Wedlburn valued his inventory at 31 December Year 6 at £3,100.

11.2 . T Lyle drafted the following trial balance. You are required to draw up a trading,
profit and loss account for the year ended 30 September Year3 and a statement of financial
position as at 30 September year 3. T Lyle
Trail Balance at 30 September Year 3
Dr(£) Cr(£)
Cash in hand 70
Cash at bank 2,130
Rent 900
Motor vehicle 4,200
Drawings 3,200
Purchases 23,380
Sales 30,870
Premises 24,000
Insurance 320
Motor vehicle expenses 860
Wages 4,200
General expenses 165
Fixtures and Fittings 850
Debtor 4,050
Creditors (Payables) 2,900
Capital 34,555
68,325 68,325
Inventory at 30 September year 3 was valued at £3,650
11.3 You are required to prepare a trading and profit and loss account for J Johns for the
year ended 31 March Year 5 and a statement of financial position as at 31 March year 5.
J Johns
Trail Balance at 31 March Year 5
Dr(£) Cr(£)
Wages 7,360
Premises 43,000
Sales 53,700
Rent 2,370
Purchases 46,820
Advertising 840
Motor vehicles 5,300
Creditors (Payables) 4,940
Drawings 3,700
Debtors (Receivable) 8,200
Lighting and heating 765
Cash at bank 1,710
Fixtures and fittings 5,700
Capital 68,335
Sundry expenses 1,210
126,975 126,975
Inventory at 31 March Year 5 was valued at £9,140.

11.4 You are required to prepare a trading and profit and loss account for D Rendell for the
year ended 30 June Year 6 and a statement of financial position as at 30 June year 6.
D Rendell
Trail Balance at 30 June Year 6
Dr(£) Cr(£)
Sales 28,640
Purchases 21,160
Rent 2,240
Wages 5,100
Insurance 190
Office Expenses 315
Motor vehicles 2,800
Office Furniture 650
Debtors (Receivable) 2,360
Creditors (Payables) 1,870
Bank 1,890
Cash 75
Drawings 1,230
Capital 7,500
38,010 38,010
Inventory at 30 June Year 6 was valued at £2,800.
 Chapter (12)
Final Account: More Features

Example (1)
The end of his second year of trading, 31 December Year 8 in W Trent drafts the
following trial balance. W Trent
Trial Balance at 31 December Yea r 8
Dr (£) Cr (£)
Purchases 6,430
Sales 9,620
Carriage inwards 230
Debtors (Receivable) 1,080
Creditors (Payables) 1,630
Rent payable 500
Office expense 390
Lighting & heating 580
Advertising 610
Rent receivable 300
Returns inwards 310
Returns outwards 180
Carriage outwards 270
Furniture & fittings 600
Motor vehicle 1,300
Cash at bank 1,100
Cash in office 50
Inventory at 1 January Year 8 1,200
Capital 3,820
Drawings 900
15,550 15,550
Trent values his inventory at 31 December Year 8 at 2,300.
Required: Prepare final accounts of W Trent for the year ended 31 December Year 8 in
vertical layout.
12.1 From the following trial balance of P Franks prepare trading profit and loss account
for the year ended 1 January year 5 and a statement of financial position at that date.
P Franks
Trial Balance as at 31 December year 5
Dr(£) Cr(£)
Purchases 155,400
Sales 221,300
Inventory 1 January Year 5 12,600
Return inwards 5,200
Return outwards 6,650
Heating and Lighting 3,900
Salaries and Wages 48,500
Sundry Expenses 4,050
Rent and rates 2,300
Premises 104,000
Equipment 28,000
Motor vehicles 21,000
Debtors (Receivable) 23,750
Bank 960
Cash 76
Discount allowed 600
Discount received 716
Creditors (Payables) 15,000
Loan repayable 31 December year 9 32,000
Drawing 10,600
Capital 145,270
420,936 420,936
Inventory at 31 December Year 5 was valued at £16,100.

12.2 From the following trail balance of T Williams, prepare a trading and profit and loss
account for the year ended 31 May Year 7 together with a statement of financial position at
the date.
T Williams
Trail Balance at 31 May Year7
Dr(£) Cr(£)
Sales 139,000
Purchases 103,500
Wages and Salaries 15,320
Buildings 32,000
Inventory, 1 June Year 6 27,230
Carriage inwards 630
Discount allowed 400
Discount received 200
Rent 5,000
Fixtures and Fittings 4,250
Returns outwards 960
Insurance 325
Return inwards 430
Debtors (Receivable) 21,460
Creditors (Payables) 12,240
Loans from T Smart, repayable in Year 11 15,000
Sundry expenses 475
Carriage outwards 2,340
Cash in Bank 4,450
Cash in Hand 195
Drawings 11,400
Capital 62,005
229,405 229,405
Inventory at 31 May Year 7 was valued at £30,580.

12.3 From the following trial balance of R Graham draw up a trading, profit and loss
account for the year ended 30 September year 6, and a statement of financial position as at
that date.
Debit (£) Credit (£)
Carriage outwards 200
Carriage inwards 310
Returns inwards 205
Returns outwards 322
Purchases 11,874
Sales 18,600
Salaries and wages 3,862
Rent and rates 304
Insurance 78
Motor expenses 664
Office expenses 216
Lighting and heating 166
General expense 314
Premises 5,000
Motor vehicles 1,800
Fixtures and fitting 350
Debtors (Receivable) 3,896
Creditors (Payables) 1,731
Cash at bank 482
Opening Inventory 2,368
Drawings 1,200
Capital 12,636
33,289 33,289
Inventory at 30 September year 6 was £2,946.

12.4 From the following trial balance of B Jackson draw up a trading, profit and loss
account for the year ended 30 April year 7, and a statement of financial position as at that
date.

Debit £ Credit £
Inventory 1 May year 6 3,776
Carriage outwards 326
Carriage inwards 234
Returns inwards 440
Returns outwards 355
Purchases 11,556
Sales 18,600
Salaries and wages 2,447
Rent 456
Rates 120
Motor expenses 664
Sundry expenses 1,202
Motor vehicles 2,400
Fixtures and fitting 600
Debtors (Receivable) 4,577
Cash in hand 120
Creditors (Payables) 3,045
Cash at bank 3,876
Drawings 2,050
Capital 12,844
34,844 34,844
Inventory at 30 April year 7 was £4,998.

12.5 The following is the trial balance of J Smiles as at 31 March year 6. Draw up a set of
final accounts for the year ended 31 March year 6.
Debit £ Credit £
Inventory 1 April year 5 18,160
Sales 92,340
Purchases 69,185
Carriage inwards 420
Carriage outwards 1,570
Returns outwards 640
Wages and salaries 10,240
Rent and rates 3,015
Communication expenses 624
Commissions payable 216
Insurance 405
Sundry expenses 318
Buildings 20,000
Debtors (Receivable) 14,320
Creditors (Payables) 8,160
Fixtures 2,850
Cash at bank 2,970
Cash in hand 115
Loan from K Ball 10,000
Drawings 7,620
Capital 40,888
152,028 152,028
Inventory at 31 March year 6 was £22,390.

12.6 The following is the trial balance of L Stokes as at 31 December year 8. Draw up a set
of final accounts for the year ended 31 December year 8
Debit £ Credit £
Loan from K Ball 5,000
Capital 25,955
Drawings 8,420
Cash at bank 3,115
Cash in hand 295
Debtors (Receivable) 12,300
Creditors (Payables) 9,370
Inventory 1 January year 8 23,910
Motor van 4,100
Office equipment 6,250
Sales 130,900
Purchases 92,100
Returns inwards 550
Carriage inwards 215
Returns outwards 307
Carriage outwards 309
Motor expenses 1,630
Rent 2,970
Telephone charges 405
Wages and salaries 12,810
Insurance 492
Office expenses 1,377
Sundry expenses 284
171,532 171,532
Inventory at 31 December year 8 was £15,000.

12.7 The following is the trial balance of J Smith as at 31 January year 9. Draw up a set of
final accounts for the year ended 31 January year 9.
Debit £ Credit £
Balance at bank 15,900
Cash in hand 120
Inventory 1 February Year 8 3,850
Office furniture and equipment 8,000
Discounts allowed and received 620 580
Motor vehicle 7,500
Debtors (Receivable) and Creditors (Payables) 9,600 3,220
Drawings 6,000
Purchases and sales 124,760 165,970
Wages and salaries 18,200
Rent 6,000
Rates and insurances 1,200
Lighting and heating 580
Sales returns and purchases returns 210 90
Motor vehicle expenses 1960
Postage and stationery 270
Sundry expenses 490
Capital at 1 February Year 8 35,400
205,260 205,260
Inventory at 31 January year 9 was £4,200.

Chapter 13
 Accrued and prepaid expenses
Accrued expenses
In orders to ensure that the full expenses of the period have been included in the profit
and loss account, the accountant must ensure that expenses accounts include not only those
items that have been invoiced and paid for during the period, but any outstanding accounts
due for expenses. In some instances, a bill or invoice will have been received for any
outstanding amounts, but in other instances, when the accounts are prepared, any additional
expenses items will need to be estimated from previous years and earlier bills or invoices.
Accruals or accrued expenses are expenses which are charged against the profit for
a particular period, even though they have not yet been paid for.

Example (1)
John’s business has an accounting year end of 31 December 20X1. He rents factory space at a
rental cost of £5,000 per quarter payable in arrears. During the year his cash payments of rent
have been as follow. £
31 March (for quarter to 31 March 20X1) 5,000
29 June (for quarter to 30 June 20X1) 5,000
2 October (for quarter to 30 September 20X1) 5,000
The final payment due on 31 December 20X1 for the quarter to that date was not paid until 4
January 20X2.
Prepare rent account.
Example (2)
During the year to 31 December 20X2, John rental charge remained the same and his
payments were as follows. £
4 January (for quarter to 31 December 20X1) 5,000
28 March (for quarter to 31 March 20X2) 5,000
28 June (for quarter to 30 June 20X2) 5,000
4 October (for quarter to 30 September 20X2) 5,000
23 December (for quarter to 31 December 20X2) 5,000
Prepare rent account.
Prepaid expenses
As well as ensuring that all of the expenses incurred in the period appear in the profit
and loss account the accountant must exclude any items of expenses that relate to future
periods, even if they have been paid in the current period.
Prepayments are payments which have been made in one accounting period, but
should not be charged against profit until a later period, because they relate to that later
period.
Example (3)
John pays insurance on the factory in advance.
His payments during 20X1 for this insurance are as follows. £
1 January (for three months to 31 March 20X1) 800
28 March (for six months to 30 September 20X1) 1,800
2 October (for six months to31 March 20X2) 1,800
Prepare insurance account.
Example (4)
John payments during 20X2 for this insurance are as follows.
£
2 April (for six months to 30 September 20X2) 2,000
2 October (for six months to31 March) 2,000
Prepare insurance account.

13.1 P Jones, a sole trader, had the following account balances on 1 January Year:
Rent payable Cr £70 Insurance Dr £40 Telephone Cr £45 Rates Dr £210
During the year, the following payments were made by cheque:
Jan Yr 7 1 Rent payable (quarterly in advance) 210
Feb 1 Insurance premium for year to 31 January Year 8 600
Feb 1 Telephone bill 127
Mar 1 Rent payable (increased amount) 300
May 1 Telephone bill 146
May 1 Rates for half year to 30 September Year 7 540
Jun 1 Rent payable 300
Aug 1 Telephone bill 163
Sep 1 Rent payable 300
Nov 1 Rates for half year to 31 March Year 8 540
Nov 1 Telephone bill 184
Dec 1 Rent payable 300
P Jones calculates that at the end of the financial year, 31 December Year 7, he owes £600 for
telephone calls.
Required; Open the four accounts listed above and post the necessary items to them.
Balances the accounts and make the appropriate transfers to the profit and loss account for
the year ended 31 December Year 7.
13.2 J Reinhold is theatrical agent whose accounting year ends on 31 December. He
provides the following details in respect of the year ended 31 December Year 10:
(1) On 1 January, 3 months rent had been paid in advance - £1,200.
On 1 April, he paid 6 months rent in advance - £2,400.
On 1 October, he paid rent for the 6 months ending 31 March Year 11-£2,700.
(2) On 1 January, commission due to Reinhold, and not yet received amounted to £3,200
January – December commission received - £64,300
At 31 December commission due and not yet received in respect of Year 10 amounted
to £1,700.
(3) On 1 January, the estimated amount outstanding on the telephone account was £320.
On 31 March, he paid the telephone bill in respect of the previous 6 months £510.
On 30 September, he paid the telephone bill in respect of the previous 6 months £520.
On 31 December, the estimated amount outstanding on the telephone account was
£300.
Required Prepare the following accounts for Reinhold in respect of the year 31
December Year 10:
Rent Account, Commission Receivable Account and Telephone Account
Prepare a Statement of financial position extract for Reinhold at 31 December Year 10
showing the three balances would appear.
13.3 The accruals and prepayments as at 30 June 20X5 were as follows.
Rent accrued £2,000: Rates prepaid £1,500: Insurance prepaid £1,800
Payments made during the year ended 30 June 20X6 were as follows.
20X5 £
10 August Rent, three months to 31 July 20X5 3,000
26 October Insurance, one year to 31 October 20x6 6,000
2 November Rates, six months to 31 March 20X6 3,500
12 December Rent, four months to 30 November 4,000
20X6
17 April Rent, four months to 31 March 20X6 4,000
9 May Rates, six months to 30 September 20X6 3,500
Required; Prepare the following accounts for the year ended 30 June 20X6.
Rent Account, Rates Account & Insurance Account
(c) Prepare a Statement of financial position extract at 30 June 20X6 showing the three
balances would appear.
Chapter (14)
 Depreciation of Fixed Assets

Depreciation is the estimate of the fall in value of fixed assets over a period of time.
Original cost of asset – Estimated disposal (i.e. sale) amount = Total Amount of
depreciation

Methods of calculating depreciation

There are a number of methods of calculating depreciation. You are concerned with only two
methods, the two most commonly used ones.
Straight the method
This is the most commonly used method of all. The total depreciable amount is charged in
equal installments to each accounting period over the expected useful life of the asset.

Cost – Scrap value

Annual depreciation =
Useful life

Example (1)
A machine, which is bought, for £40,000 and to have a life of 4 years and a disposal value at
the end of that time £4,000

Reducing balance method

This is also termed the diminishing balance method. With this method a fixed percentage is
written off the reduced balance each year. The reduced balance is the cost of the assets less
depreciation to date
Example (2)
A machine is bought for £20,000 and depreciation is to be provided for at 40% reducing
balance method for 3 years.

Comparison of straight line and reducing balance methods

Example (3)
A vehicle is purchased for £40,000 and expected to have a working life of 4 years and then to
be disposed of for £2,500.
The reducing balance method will use a 50% write down.

14.1 A motor vehicle is bought for £12,800. It is planned to be used for 5 years and then
sold for £400.Caculate the depreciation for each year using
(a) the straight line method ; and
(b) the reducing balance method , applying a depreciation rate of 50%

14.2 A machine is bought for £24,300. It is intended to be used for 4 years and it is
estimated that it will then be sold for £4,800. Show the calculations for each year usin
(a)the reducing balance method applying a depreciation rate of 331/3 % and
(b) The straight line method

14.3 on 1 January year 5, T Northern purchased office furniture by cheque £4,000. he

decided to depreciate it at the rate of 15% per annum using the straight line method of
depreciation.
Prepare Northern’s
(a) Office furniture account
(b) Provision for depreciation of office furniture account
For the three years ending 31 December Years 5, 6 and 7.
14.4 A machine costing £20,000 was purchased by R Sylvester by cheque on 1 July Year
3. He decided to depreciate it at the rate of 40% per account using the reducing balance
method.
(a) Show the
(¡) Machine account
(¡¡) Provision for depreciation of machine account
For the three years ending 30 June Years 4,5and 6.
(b) Show how the asset would appear in the statement of financial position of R
Sylvester on 30 June Year 6.

14.5 On 1 January Year 6, Tanya Green bought a motor vehicle for £6,500 by cheque. She
decided to depreciate the motor vehicle by 25% per annum using the straight-line method of
depreciation. She sold the motor vehicle on 31 December Year 8 for £1,750 received in cash.
Show the
(a) motor vehicle account
(b) provision for depreciation of motor vehicle account, and
(c) disposal account
For the financial year ending 31 December Years 6, 7 and 8

14.6 On 1 April Year 2, Andrew Pointer bought a machine for £15,000 by cheque. He
decided to depreciate it at the rate of 20% per annum using the reducing balance method of
depreciation. On 31 March Year 5, he sold the machine for £6,900 by cheque.
Show the
(a) machine account
(b) provision for depreciation for machine account, and
(c) disposal account
For the financial years ending 31 March Year 3, 4 and 5

14.7 R Hagger commenced trading on 1 January year 1. He wished to compare the straight
line and reducing balance methods of depreciating his motor vehicles.
He decided that any vehicle purchases during January to June would be charged a full
year’s depreciation, and any purchases in July to December would be charged a half-year’s
depreciation. Any disposal in January to June would be charged half a year’s depreciation,
and any disposal in July to December would be charged a full year’s depreciation.
The following additional information is available:
(1) Depreciation on both straight line and reducing balance method is 25% per annum.
(2) In January year 1, vehicle A is purchased for £16,000 and in August year 2, vehicle B is
purchased for £18,000.
(3) On 31 July year 3, vehicle A is sold for £6,000.
Required;
Prepare, using the straight-line method:
(a) Provision for depreciation accounts for year 1, 2 and 3.
(b) Disposal of motor vehicle account
(c) Statement of financial position extract at 31 December year 3.

Prepare using the reducing balance method;

(d) Provision for depreciation accounts for years 1, 2 and 3.
(e) Disposal of motor vehicle account.
(f) Statement of financial position extract at 31 December year 3.
 Chapter (15)
Bad Debts & Provision for Doubtful Debts
15.1 On 31 December year 4 the end of the financial year G Thorpe balanced his accounts
and found that his total Debtors (Receivable) amounted to £24,000. Included in this amount
were irrecoverable debts of £1,600 which he decided to write off as bad debts. There was no
provision for doubtful debts. Therefore, he decided to make a provision for doubtful debts
amounting to 5% of Debtors (Receivable).
At 31 December year 5 his Debtors (Receivable) totaled £29,000 and included in this amount
were irrecoverable debts amounting to £1,900. He again decided to write off the irrecoverable
debts and adjust the provision for doubtful debts to 5% of his Debtors (Receivable).
On 31 December year 6 his Debtors (Receivable) totaled £23,000 but there were no
irrecoverable debts. He again decided to adjust the provision for doubtful debts to 5% of his
Debtors (Receivable).
Required;
(a) Prepare the following accounts for the years-ended 31 December year 4, 5 and 6;
(i) bad debts
(ii) provision for doubtful debts
(a) Show the statement of financial position extracts in respect of Debtors
(Receivable) on 31 December year 4, 5, and 6.
15.2 B Taner owns a wholesaling business. He adjusts the provision for doubtful debts at
the end of each financial year. Irrecoverable debts are written off debtor accounts as they
become known. The following information is available.
For the year-ended Bad debts written off Net total Debtors % rate of provision for
during the year (£) (Receivable) at year- doubtful debts
end (£)
31 March year 5 1,120 19,700 6%
31 March year 6 2,370 26,500 5%
31 March year 7 1,680 24,300 4%
Required;
(a) Prepare the following accounts for the years-ended 31 March year 5, 6 and 7;
(i) bad debts
(ii) provision for doubtful debts. (The balance on the account at 1 April year 4 was
£910)
(b) Show the statement of financial position extracts in respect of debtors on 31
December year 5, 6, and 7.

15.3 The following information is available in relation to T Supplier

£
Balance on debtors at 31 December year 6 before written off bad debts 81,600
Bad debts written off in year 6 1,200
Provision for doubtful debts is to be create 2% of debtors at 31 December year 6
Balance on debtors at 31 December year 7 before written off bad debts 122,700
Bad debts written off in year 7 1,800
Provision for doubtful debts is to be increase to 4% of debtors as at 31 December year 7
Balance on debtors at 31 December year 8 after written off bad debts 103,500
Bad debts written off in year 8 2,100
Provision for doubtful debts is to be reduced to 3% of debtors as at 31 December year 8
Required;
(a) Prepare the following accounts for the years-ended 31 December year 6,7and 8.
(i) bad debts
(ii) provision for doubtful debts
(b) Show the statement of financial position extracts in respect of debtors on 31
December year 6,7and 8.
(c) If one of the debts written off early in year 8 was to be recovered later in year 8,what
accounting entries would you expect to be made?

Chapter (16)
Final account and adjustments

Example (1)
J Moon, a sole trader extracted the following trial balance on 31 May Year 8:
Balance at bank 15,900
Cash in hand 120
Inventory 1 June Year 7 3,850
Discounts 620 380
Receivable and Payables 9,600 3,220
Provision for doubtful debts 200
Drawings 6,000
Office furniture and equipment (cost) 8,000
Motor vehicle (cost) 7,500
Provision for Depreciation (at 1 June Year 7)
Office furniture and equipment 2,400
Motor vehicle 3,000
Purchases and sales 124,760 165,970
Wages and salaries 18,200
Rent 6,000
Rates and insurances 1,200
Lighting and heating 580
Sales returns and purchases returns 210 90
Motor vehicle expenses 1960
Postage and stationery 270
Sundry expenses 490
Capital at 1 June Year 7 30,000

In addition the following information should be taken into account:

(1) Closing inventory at 31 May Year 8- valued at £4,200

(2) Accrued due but unpaid- wages and salaries £1,320

(3) Rates and insurances- prepaid by £160

(4) The depreciation provision for the fixed assets is as follows;

Office furniture and equipment 10% straight line
Motor vehicle 20% reducing balance

(5) Provision for Doubtful Debts is to be increased to 5% of debtors.

Required: Prepare in respect of J Moon

(a) trading and profit and loss accounts for the year ended 31 May Year 8
(b) statement of financial position at 31 May Year 8
16.1 John Cleaver has just completed his second year of trading. His trial balance
extracted from the Ledger at 31 December Year 2 as follows:
Dr (£) Cr(£)
Capital 26,120
Loan from brother 8,000
Purchases and sales 49,370 82,578
Returns inwards and outwards 188 326
Inventory 1 January Year 2 3,930
Drawings 12,300
Debtors (Receivable) and Creditors 22,100 9,380
(Payables)
Bank overdraft 1,196
Bank interest 245
Wages 5,593
Rent 1,860
Insurance 270
Heat and light 440
Advertising 265
Delivery costs 1,803
Bad debts 436
Fixed assets (at cost) 32,000
Accumulated depreciation on fixed assets to
31 December Year 1 3,200

The following adjustments are to be taken into accounts:

(1) Inventory at 31 December Year 2 £2,876
(2) Provide for annual depreciation of fixed assets at 10%on cost.
(3) Accrued loan interest £1,200.
(4) Provision for doubtful debts is to be create 5% of Debtors (Receivable).
(5) Prepaid rent £860.
Required: Prepared Cleaver’s trading and profit and loss account for the year ended 31
December Year 2 a statement of financial position at that date.

16.2 The following trial balance was extracted from the books of P Davenport, at 30.9.Yr7
Dr(£) Cr(£)
Inventory 1 October Year 6 2,306
Purchases and sales 75,390 107,370
Sales returns and purchase returns 165 1,924
Debtors (Receivable) and Creditors (Payables) 18,200 4,310
Bank 2,710
Cash in hand 45
Fixtures and fittings at cost 10,400
Provision for depreciation of fixtures and fittings 2,080
Motor vehicles at cost 18,000
Provision for depreciation of motor vehicles 3,000
Drawings 8,900
Capital 40,482
Wages and salaries 16,710
Insurances 1,860
Advertising 500
Motor vehicle running costs 2,210
Accountancy fees 650
 Discounts 1,830 790
Provision for doubtful debts 480
Bad debts written off 560
Notes: At 30 September Year 7
(1) Closing inventory valued at cost £6,910
(2) Wages and salaries accrued £730 Insurance prepaid £88
(4) Provide for depreciation: Fixtures and fittings -20% on reducing balance
Motor vehicles -25% on cost
(5) Write off £300 as a bad debt and adjust the provision for doubtful debts to 5%.
Required Prepare the trading and profit and loss account for P Davenport for the year ended
30 September Year 7 and a statement of financial position at that date.

16.3 Donald Brown, a sole trader, extracted the following trial balance on 31 December
19X0.
Trial balance as at 31 December 19X0
Debit (£) Credit (£)
Capital at 1 January 19X0 26,094
Debtors (Receivable) and Creditors (Payables) 42,737 35,404
Cash in hand 1,411
Fixtures and fittings at cost 42,200
Discount 1,304 1,175
Inventory at 1 January 19X0 18,460
Purchases and Sales 387,936 491,620
Motor vehicles at cost 45,730
Lighting and heating 6,184
Motor expenses 2,862
Rent 8,841
General expenses 7,413
Balance at bank 19,861
Provision for depreciation; fixtures and fittings 2,200
; motor vehicles 15,292
Drawings 26,568
The following information as at 31 December 19X0 is also available.
(a) £218 owes for motor expenses.
(b) £680 has been prepaid for rent.
(c) Depreciation is to be provided of the year as follows.
Motor vehicles 20% on cost
Fixtures and fitting 10% reducing balance method
(d) Inventory at the close of business was valued at £19,926.
Required; Prepare Donald Brown’s trading profit and loss account for the year ended 31
December 19X0 and his statement of financial position at that date.

16.4 The following trial balance has been extracted from the ledger of Herbert Howell, a
sole trader, as at 31 May 19X9, the end of his most recent financial year.
Dr (£) Cr (£)
Property / provision for depreciation 90,000 12,500
Equipment / provision for depreciation 57,500 32,500
Inventory as at 1 June 19X8 27,400
Purchases / Sales 259,600 405,000
Discount 3,370 4,420
Wages and salaries 52,360
Bad debts 1,720
Loan interest 1,560
Carriage outwards 5,310
 Other operating expenses 38,800
Trade Debtors (Receivable) / Trade Creditors 46,200 33,600
(Payables)
Provision for bad debts 280
Cash in hand 151
Bank 14,500
Drawings 28,930
13% loan 12,000
Capital 98,101
The following information as at 31 May 19X9 is available.
(a) Inventory as at the close of business was valued at £25,900.
(b) Depreciation for the year ended 31 May 19X9 has yet to be provided as follows;
Property – 1% using the straight line method
Equipment- 15% using the straight line method.
(c) Wages and salaries are accrued by £140.
(d) Other operating expenses include certain expenses prepaid by £500. Other expenses
included under this heading are accrued by £200.
(e) The provision for bad debts is to be adjusted so that it is 0.5% of trade Debtors
(Receivable) as at 31 May 19X9.
(f) Purchases include goods valued at £1,040 which were withdrawn by Mr. Howell for
his own personal use.
Required ; prepare Mr. Howell' s trading and profit and loss account for the year ended
31 May 19X9 and his statement of financial position as at 31 May 19X9.

16.5 The following trial balance has been extracted from the accounts of Brenda Bailey, a
sole trader.
Debit (£) Credit (£)
Sales 427,726
Purchases 302,419
Carriage inwards 476
Carriage outwards 829
Wages and salaries 64,210
Rent and rates 12,466
Heat and light 4,757
Inventory at 1 July 19X8 15,310
Drawings 21,600
Equipment 102,000
Motor vehicles 43,270
Provision for depreciation ; equipment 22,250
; motor vehicle 8,920
Debtors (Receivable) 50,633
Creditors (Payables) 41,792
Bank 3,295
Sundry expenses 8,426
Cash 477
Capital 122,890

The following information as at 30 June 19X9 is also available.

(a) £350 owes for heat and light.
(b) £620 has been prepaid for rent and rates.
(c) Depreciation is to be provided for the year as follows
Equipment – 10% on cost
Motor vehicle –20% on cost
(d) Inventory at the close of business was valued at £ 16,480.
Required; prepare Brenda Bailey’s trading and profit and loss account for the year ended
30 June 19X9 and his statement of financial position at that date.

16.6 The following trial balance has been extracted from the ledger of Kevin Webster a
sole trader, as at 31 May 19X1, the end of his most recent financial year.
Dr (£) Cr (£)
Property, at cost 120,000
Equipment, at cost 80,000
Provision for depreciation as at 1 June 19X8:
property 20,000
equipment 38,000
Purchases 250,000
Sales 402,200
Inventory as at 1 June 19X0 50,000
Discount allowed 18,000
Discount received 4,800
Return outwards 15,000
Wages and salaries 58,800
Bad debts 4,600
Loan interest 5,100
Other operating expenses 17,700
Trade Creditors (Payables) 36,000
Trade Debtors (Receivable) 38,000
Cash in hand 300
Bank 1,300
Drawings 24,000
Provision for bad debts 500
17% loan 30,000
Capital 121,300
667,800 667,800

The following information as at 31 May 19X1 is available.

(a) Inventory as at the close of business was valued at £42,000.
(b) Depreciation for the year ended 31 May 19X9 has yet to be provided as follows;
Property – 1.5% using the straight line method
Equipment- 25% using the straight line method.
(c) Wages and salaries are accrued by £800.
(d) Other operating expenses prepaid by £300
(e) The provision for bad debts is to be adjusted so that it is 2% of trade Debtors
(Receivable).
Required ; prepare Kevin Webster' s trading and profit and loss account for the year
ended 31 May 19X1 and his statement of financial position as at 31 May 19X1.

16.7 Joan Wright produced the following Trial Balance at 31 March Year 6:
£ £
Freehold premises 70,000
Fixtures and fittings at cost 20,000
Provision for Depreciation of fixtures and fittings 6,000
Debtors (Receivable) and Creditors (Payables) 6,200 4,860
Wages and salaries 10,760
Drawings 6,000
Purchases and sales 35,480 52,660
Light and heat 510
Telephone 296
 General expenses 315
Insurance 425
Discount allowed and received 548 316
Sales returns and purchases returns 1,220 830
Provision for doubtful debts at 1 April year 5 130
Inventory, 1 April Year 5 4,580
Business rates 460
Bank balance 5,326
Cash in hand 36
Bad debts 150
Capital 97,510

Additional information at 31 March Year 6:

Inventory at cost was £5,520
Depreciation is to be provided on fixtures and fittings at the rate of 10% on cost per annum
Light and heat accrued due was £72
Insurance paid in advance were £65
Provision for Bad Doubtful Debts is to be 2½% of Debtors (Receivable)
Required: Prepare, for Joan Wright, the:
(a) Trading and Profit & Loss Account for the year ended 31 March Year 6
(b) Statement of financial position at 31 March Year

16.8 W Barton prepared the following Trial Balance at 31 March year 6;

£ £
Motor Vehicles at cost 12,000
Provision for depreciation of Motor Vehicles 4,800
Inventory at 1 April year 5 3,460
Fixtures and Fittings at cost 7,000
Provision for depreciation of Fixtures and Fittings 1,400
Debtors (Receivable) and Creditors (Payables) 5,120 3,480
Purchases and Sales 38,360 80,120
Provision for doubtful debts 100
Telephone 264
Wages 23,416
Light and heat 330
Discount allowed and received 1,060 730
Rent 5,000
Sales returns and purchases returns 610 420
Drawing 6,500
Insurance 560
Bad debts 72
Bank charges and interest 160
General expenses 1,678
Balance at bank 3,160
Capital 17,700
Note
Inventory at cost £ 4,210.
W Barton provides for depreciation:
Motor Vehicles 20% per annum on cost
Fixtures and fitting 10% per annum on cost
Insurance prepaid £ 120.
Light and heat accrued due £ 45.
Provision for doubtful debts is to be adjusted to 2½% of Debtors (Receivable).
Required; For W Barton prepare;
The Trading, Profit & Loss account for the year ended 31 March year 6.
Statement of financial position as at 31 March year 6.

16.9 M Tong, a sole trader engaged in wholesaling, extracted the following trial balance from his books at
the close of business on 30 April Year 5:
Dr Cr
£ £
Office furniture and equipment 6,000
Discounts 1,170 390
Cash at bank 3,240
Cash in hand 160
Inventory 1 May Year 4 2,970
Purchases and Sales 13,890 35,030
Delivery vehicle, at cost 7,400
Provision for depreciation on delivery vehicle 2,000
Debtors (Receivable) and Creditors 8,400 3,650
(Payables)
Wages and salaries 9,350
Provision for doubtful debts 600
Capital 1 May Year 4 20,000
Drawings 4,500
Vehicle running expenses 1,840
Rent ,Rates and Insurance 2,340
Sundry expenses 410

In addition, Tong has noted the following points:

(1) Inventory at 30 April Year 5 has been valued at £3,160.

(2) Wages accrued amount to £280.

(3) The depreciation provision on the delivery vehicle is £1,200

The depreciation provision on office furniture is £500.

(4) The provision for doubtful debts is to be set at 5%of Debtors (Receivable).

(5) During the year, Tong took goods at a cost price of £90, for his own use.
He has not yet recorded this in the books of account.

(6) Insurance paid in advance is £120.

Required: repare, in respect of M Tong

(a) the trading and profit and loss account for the year ended 30 April Year 5
(b) A statement of financial position at 30 April Year 5
 Chapter 17
Club and society accounts

17.1
The following trial balance has already been prepared for the Wall Lane Social Club:
Dr Cr
£ £
Equipment 4,800
Motor vehicle 8,600
Provision for depreciation :
Equipment 1,200
Motor vehicle 3,600
Subscriptions received 6,320
Rent payable 3,100
Insurance 430
Telephone and postage 370
General expenses 280
Rent receivable 540
Accumulated Fund 5,920
Additional information which applies at 31 December Year 5:
(1) Subscriptions: £320 has been received in advance of Year 6
£240 accrued due for Year 5
(2) Rent payable £300 accrued
(3) Insurance £50 prepaid
(4) Depreciation to be provided:
Equipment £800
Motor vehicle £1,200
Required; prepare Income and Expenditure account and statement of financial position.

17.2
The following Trial Balance was extracted from the books of the champion Social Club on 30
September Year 4:
Dr Cr
£ £
Accumulated fund 11,000
Subscriptions received 5,480
Refreshment takings 17,230
Refreshment purchases 9,840
Club premises 9,000
Fixtures and equipment 2,000
Inventory of refreshments at 1 October 2,350
Year 3
Wages of refreshment staff 3,040
Insurance 720
Secretary’s salary 5,000
Cash in hand 1030
Affiliation fees 540
Administration expenses 2,060
Income from sale of dance tickets 1,420
Creditors (Payables) for refreshment 1,310
 supplies
Hire of hall and band 860

(1) Refreshment inventory at 30 September Year 4 -£2,760

(2) Subscriptions in arrears at 30 September Year 4 - £230
(3) Wages due but not paid at 30 September Year 4 -£120
(4) Provide £400 for depreciation of fixtures and equipment
(5) Insurance prepaid at 30 September Year 4 amounted to £120
Required
Prepare the refreshment trading account and general income and expenditure account
for the year ended 30 September Year 4 and a statement of financial position at that date.

17.4
The treasure of Newtown Cricket Club extracted the following trial balance at the end of the
club’s financial year 31, December Year 4.
Dr Cr
£ £
Sports ground 50,000
Club premises 15,000
Club equipment 6,000
Profit from sales of refreshments 520
Subscriptions 5,610
Lighting and heating 235
Repairs and redecoration 600
Income from social events 2,450
Wages: grounds man 3,100
Secretary and treasurer’s expenses 284
Expenses for social events 1,410
Rates and insurance 630
Inventory of refreshments at 31 December Year 4 870
Balance at bank 2,760
Cash in hand 15
Accumulated fund 72,324
You are given the following additional information:
(1) Subscriptions paid in advance at 31 December Year 4 amounted to £60 whilst
subscriptions in arrears were £140
(2) Accruals at 31 December Year 4 – lighting and heating £32
(1) Prepayments at 31 December Year 4 – insurance £50
(2) Depreciation should be provided as follow: club equipment - £600
Required: Prepare, for the Newtown Cricket Club:
(a) income and expenditure account for the year ended 31 December Year 4
(b) statement of financial position at 31 December Year 4
 Chapter 18
BANK RECONCILIATION STATEMENTS
Example (1)
Suppose that Sandra Renton’s cash book for the month of March Year 3 appears as follows
Cash book (bank columns)
Year 3 £ Year 3 £
Mar 1 Balance 560 Mar 6 T Lyle (236715) 320
" 4 J Ogden 150 " 14 R Brown (236716) 180
" 10 A Lancaster 215 " 24 T Brentmore (236717) 95
" 20 N Wells 86 " 28 F Wragg (236718) 120
" 30 T Malone 54
The balance at this stage, shown as a separate note, is a debit balance of £350.

Sandra receives the following bank statement:

Dr Cr. Balance
Year 3 £ £ £
Mar 1 Balance b/f 560 Cr.
" 6 J Ogden 150 710 Cr.
" 8 Standing order: Block & Trent 80 630 Cr.
" 10 T Lyle (236715) 320 310 Cr.
" 12 A Lancaster 215 525 Cr.
" 14 Credit transfer: A Zimm 110 635 Cr.
" 19 R Brown (236716) 180 455 Cr.
" 21 N Wells 86 541 Cr.
" 26 Direct debit: B Traders Association 90 451 Cr.

Example (2)
G Johnson sole trader received his bank statement for the year ended 31 March Year 6. At
that date, it showed that his balance in the bank amounted to £ 22,900 where as the balance at
bank in his cash book was £ 23,399.
When he checked the bank statement with his cash book. G Johnson found the following:
(1) A standing order payment for rent of £672 had not been entered in his cash book.
(2) Cheques drawn by G Johnson amounting to £1,215 had not been presented to the
bank.
(3) A credit transfer of £814 from T Brock had not been entered in his cash book.
(4) G Johnson had entered a payment of £470 to P May as £740 in his cash book.
(5) Bank charges of £46 had not been entered in his cash book.
(6) The bank had not credited G Johnson with receipts of £2,186 paid into the bank on
31 March Year 6.
(7) A cheque for £520 from D Holt had been returned by the bank marked “refer to
drawer” but this had not been recorded in his cash book.
(8) G Johnson had omitted sales receipts amounting to £626 from his cash book but
they were shown on his bank statement.
Required:
(a) Complete G Johnson’s cash book at 31 March Year 6.
(b) Prepare a bank reconciliation statement connecting with the bank statement balance.
Example (3)
The following information is available in respect of A wolfson, a trader;

CASH BOOK (Bank only)

Year 5 £ Year 5 £
September September
1 Balance b/d 2,806 4 Purchases(915) 234
5 Sales 1,020 9 Wages(916) 635
10 T Swithin 857 16 N Victor(917) 526
15 Sales 1,370 24 Rent(918) 370
23 K Smart 524 26 Wages(919) 680
25 T Hunt 413 27 N Hills(920) 416
28 Sales 1,245 29 T Swithin(921) 285
30 Purchases(922) 540
30 Balance c/d ?

BANK STATEMENT

Year 5 Debit Credit Balance

September £ £ £
1 Balance 2,806 Cr
7 915 234 2,572 Cr
9 Credit 1,020 3,592 Cr
12 916 635 2,957 Cr
15 Credit 857 3,814 Cr
17 C/T-P Mott 271 4,085 Cr
19 Credit 1,370 5,455 Cr
21 S/O Minster Publications 96 5,359 Cr
23 C/T-T Lennox 870 4,489 Cr
26 D/D (Insurance) 230 4,259 Cr
28 919 680 3,579 Cr
30 Bank interest 8 3,587 Cr
Required:
(a) Calculate the missing balance in the Cash Book and enter it in your Answer Book as the
balance brought down at 30 September Year 5.
(b) Bring the Cash Book up-to-date by posting to it the items you consider appropriate from
the Bank statement. Balance the Cash Book and bring down the new balance at 1
October Year 5.
(c) Prepare the Bank Reconciliation Statement at 30 September Year 5.
(d) State the full name for each of the following:
S/O
D/D
C/T
 BANK RECONCILIATION STATEMENTS
Items not recorded in cash book but has been recorded in bank statement

These are items which arise in the bank statements before they are recorded in the cash book.
Such unrecorded items may include

Interest
Bank charges
Dishonored cheques
Direct debits /standing orders(bank paid on behalf of the business)
Direct credits/credit transfer(bank received on behalf of the business)

These are not recorded in the cash book simply because the business does not know that these
items have arisen until they see the bank statement. The cash book must be adjusted to reflect
these items.

Cash book (bank account)

Balanced b/d xxx Bank charges xx
Interest received xx Interest paid xx
Credit transfer xx Direct debits/standing orders xx
Dishonored cheques xx

Items not recorded in bank statement but has been recorded in cash book

Outstanding / unpresented cheques (cheques sent to suppliers but not yet cleared by the bank)
Outstanding . uncleared lodgements deposit (cheques received by the business but not yet
cleared by the bank)

The bank statement balance needs to be adjusted for these items

Balancer per bank statement xxx

Less: outstanding / unpresented cheques (xx)
Add: outstanding / uncleared lodgements xx
Balance as per cash book xxx
 CORRECTION OF ERRORS
Errors not affecting trial balance agreement
(a) Errors of omission
a transaction is completely omitted in the book
e.g. An item of office furniture has been purchased for £215 on credit from Dellers Ltd. and
has not been recorded

(b) Errors of commission

a transaction is entered in a wrong account of the same class
e.g. A sale or goods £190 on credit to T Winter has been entered in the account of D Winter.
e.g. A payment for stationery £76 has been posted from the bank account to postage account.

(c) Reversal of entries

wrong side of the two accounts concerned.
e.g. Purchases of goods for cash £360 has been entered as a debit to cash account and a credit
to purchases account.

(d) Error of principle

a transaction is entered in the wrong class of account.
e.g. The payment of an invoice for £315 in respect of repairs to the motor vehicle has been
wrongly debited to motor vehicle account.

(e) Error of original entry

the amount has been entered incorrectly in both accounts.
e.g. a sale of goods £87 on credit to F Sharp has been entered in the books as £78.

(f) Compensating error

This occurs where errors cancel each other out.
e.g. Payment of Telephone 34 has been entered in the Telephone account as 43(debit) is over-
stated by £9 and cash sales 45 has been entered in sales account as 54 (credit) also is over-
started by £9.

Errors affecting trial balance agreement

Entered only one debit or only one credit

Entered 2 debit or 2 credit
Entered in different amounts in accounts
Error in calculation of account balance
Error in preparing trial balance